British banks warned over tougher EU sanctions on Russia

UK banks have been told to prepare for tougher EU sanctions on Russia.

The escalating crisis has prompted City regulators to step up discussions with banks about loans to Russian clients. Officials from the Bank of England’s financial stability watchdog the Prudential Regulation Authority and the Financial Conduct Authority are understood to have held urgent talks following the downing of Malaysian Airlines plane last week.

The EU is preparing to impose tougher sanctions which would target entire sectors of Russia’s economy and enforce asset freezes on an expanded list of its officials, businessmen and entities. Banks are now being urged to trawl through any links with Russian companies, either directly or indirectly. This includes clients which have business dealings with Russian companies.

The focus is thought to be on ensuring there is no danger that banks breach sanctions or money laundering rules. But banks are also being told to provide updates on their total loans to Russian customers.

Regulators do not believe sanctions and the crisis in Ukraine poses a significant direct threat to the financial safety of UK banks, with their limited exposure to Russia.

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A source said: ‘Regulators are clearly following this very closely and have stepped up conversations with UK banks. Talks have been held about the knock-on effect of sanctions. But the level of exposure is not in any way material or worrying.’

Latest figures from Switzerland-based watchdog the Bank of International Settlements show British banks have a £9.3billion exposure to Russia.

Individual UK banks do not break down their loans to Russian companies.

UK banks have a chequered record when it comes to complying with sanctions. Both Standard Chartered and HSBC have received huge fines for breaching US sanctions against brutal regimes including Iran and Sudan.

Yesterday analysts at UBS warned about the impact of the crisis in the Ukraine on European banks.

The total exposure of banks across Europe to Russia is £90billion, according to BIS and £12billion to Ukraine.

Italy’s UniCredit has almost €16billion of loans to customers in Russia and the Ukraine; France’s Societe Generale has more than €12billion.

An analyst at UBS said: ‘We are far more concerned about the exposure to Ukraine.’